Quick Guide to Financial Planning For Your Family Basis Your Lift Stage
If there is one thing in life that will continue irrespective of whatever age you are is financial worry. This is why having an investment and wealth plan that spans several years is very important.
Your financial needs, planning, and goals will differ from one individual to another. However, irrespective of that, there are always some factors that play an important role in regarding investment planning made in different age brackets. And today, we are going to help you grasp the art of financial planning in different age brackets.
Personal Financial Planning During Life Stages
Planning your finances well and in advance is the path to attaining financial security and freedom. This is the main goal of retirement planners and having a financial budget. One should remember that this is a dynamic process and should vary across several age groups. This means that your ability to take risks as a single individual would be different from a stage where you have a family or you are planning to retire.
Let’s take a closer look at what needs to be done for proper financial planning during different life stages.
- Financial Planning for People in their 20s
The 20s is the time when people have just started earning money. There are many people who have just started their careers or are in the early stage of their careers. The lifestyle, spending habits, and financial commitments of individuals within this age group are also different in comparison to people in their 30s and 40s.
A major part of this age group also has their student loans to repay and a fast-moving lifestyle to keep up with. There is also a promise of regular income and the risk appetite of this age group is also the highest. Hence, one can afford to be highly aggressive with their financial risk profile.
In this age group, one also has the potential to scale higher and afford the luxury of having a major portion of their asset class invested in equity. An ideal allocation would be 75% of equity investment and an equal portion of debt and cash investments of 13%.
One should remember that investments in equity carry market risk and should be navigated carefully. If you need guidance in regards to which funds to pick and how you can build a portfolio, then you should understand the market clearly before proceeding further.
- Financial Planning for People in their 30s
During the 30s, the major financial goals of an individual are to make big decisions in regards to marriage expenses, buying a house or a property, and protecting their future. By this time, most people have a stable job with their careers on the right course. One has also accumulated a significant number of years in terms of work experience and financial planning experience.
This is good news because it allows individuals to have an appetite for risky investments with an aggressive approach. With the scale of your income and its regularity, you can have the bandwidth to allocate a good portion of your investment. This means that about 60% of your wealth should go towards equity investments and the remaining 25% and 15% should be distributed between debt and cash respectively.
- Financial Planning for People in their 40s
The people who fall under the age group of the 40s have the most amount of responsibilities. This could include supporting parents, funding the further education of your children, or making new adjustments as a parent.
All these responsibilities will stretch your income. This is why the investment one makes during this point of time should be more focused on security in comparison to getting higher returns by taking more risks.
Ideally, the appetite of risk for people falling within this age group should drop down to medium. This means that one must continue to invest by adopting an approach of moderate aggression. Further, this refers to the fact that now equity should be brought down to a safe level of 40%. At the same time, one can increase debt investment to 25% and cash to 35%.
This is a considerable change from the previous fund allocation. This is done by keeping in mind that one needs to take fewer risks and accept moderate returns because it will ensure the safety of the funds through higher debt investment.
- Financial Planning for People in their 50s
People within the age group of the 50s are considered to be in a pre-retirement age. This is a crucial junction in an investor’s life because the investment focus here is based on the knowledge that very soon their regular income will stop and provisions will have to be made for a comfortable retirement.
During this phase of the investment journey, one needs to replace the dominance of equity from the portfolio with cash investments. This means that an allocation of 45% cash, 35% debt, and 20% equity would be ideal. The risk appetite here should be between moderate to low.
- Financial Planning for People in their 60s
This is the time period when people have retired and do not have a source of regular income from the jobs that they had in the preceding decades. This points to the fact that your financial planning should now be focused on maintaining the lifestyle that you have. At the same time, you should also have provisions for unforeseen contingencies.
As a retired individual, your risk appetite should be the lowest in comparison to when you were making a regular income. Further, the risk profile of your investments should be conservative with the asset classes having an approximate cash exposure of 80% and a debt exposure of 20%.
You must remember that your expenses and your financial goals change with time. And if you are able to adapt to those changes and work around them, then you can have a better financial plan that would help you throughout the years to come.